GST Overhaul for Bharat: A Needonomics Path for Needo- happiness

Prof. Madan Mohan Goel, Proponent of Needonomics & Former Vice-Chancellor

Indian economy has been undergoing significant transformations over the last decade. One of the most noteworthy reforms was the implementation of the Goods and Services Tax (GST) in July 2017, which replaced a labyrinth of indirect taxes such as VAT, excise duty, and service tax. 1 July is celebrated as GST Day. It promised a uniform tax regime, greater transparency, and ease of doing business. Yet, as experience has shown, the system has not been without challenges. From the perspective of Needonomics School of Thought (NST), GST reforms remain not just desirable but essential for promoting fairness, simplicity, and the welfare of all stakeholders including middle class.

The current push for GST overhaul in 2025–26 is particularly significant. It seeks to streamline tax rates, reduce complexities, and enhance economic growth. As per recent economic analysis, a well-executed GST reform could add up to 0.6 percentage points to India’s GDP growth in 2025–26, offsetting external shocks such as the lingering effects of tariff wars, including the so-called Tariff Terrorism of Trump (TTT) that once disrupted global trade dynamics. This anticipated boost, however, is not just a matter of statistics—it has deeper implications for needo-consumption, especially for India’s vast middle class.

GST and the Needonomics Mandate

The Needonomics School of Thought (NST) emphasizes aligning economic systems with needs , stressing fairness in distribution and efficiency in production. Under NST lens, GST should be evaluated not simply as a tool for revenue collection but as an instrument of need-based taxation that ensures essentials are affordable while luxury consumption bears a fair share of the tax burden.

Eight years ago, GST was heralded as the “one nation, one tax” regime. In principle, it was supposed to be simple, predictable, and equitable. However, in practice, GST has evolved into a multi-rate structure—5%, 12%, 18%, and 28%—with numerous exemptions and special cases. While intended to balance revenue needs and social priorities, this complexity has undermined the original promise of simplicity and fairness.

From the perspective of NST, such multiplicity often leads to confusion, disputes, and, more importantly, misalignment with social needs. For example, classifying soap at 18% tax across the board effectively treats it as a luxury item, even though manual laborers and the working class require it daily. This creates regressive taxation, where essentials become costlier for those least able to bear the burden.

Flaws in the Current GST Structure

1. Arbitrary classification of essentials vs. luxuries

The heart of the problem lies in defining what constitutes a necessity and what constitutes a luxury. Items like cement and new tyres attract a 28% GST rate, placing them in the category of ‘luxuries.’ But are they? Cement is the backbone of housing, and tyres are essential for transportation. Such classifications, driven more by fiscal compulsions than by social logic, contradict the principles of Needonomics.

2. Revenue Maximization vs. Welfare Maximization

Current GST practices lean heavily on the principle of maximizing revenue, reflecting the old metaphor of “squeezing the goose without killing it.” While the government has been careful not to overburden the economy, the pursuit of revenues often comes at the cost of consumer welfare. Needonomics reminds us that taxation should be about keeping the goose not just alive, but also happy—ensuring citizens’ needs are met without undue strain.

3. Impact on Middle-Class Consumption

The poor, who consume a limited basket of essentials, are relatively less affected by GST complexities. The real impact falls on the middle class, which consumes a wider array of goods and services. This is where needo-consumption—consumption guided by needs—becomes central. The middle class is squeezed between rising aspirations and limited disposable income, making GST reform all the more urgent.

Case for Overhaul: NST’s Prescription

The current overhaul proposes the elimination of the 12% and 28% GST slabs, consolidating most goods and services into just two categories—5% for essentials and 18% for luxuries. From the viewpoint of NST, this is both logical and necessary.

1. Scrapping 12% and 28% slabs

Removing the 12% rate eliminates confusion between essentials and semi-luxuries, while scrapping the 28% rate removes the excessive burden on goods that, in practice, are often not true luxuries.

2. Two-tier structure: 5% and 18%
   • 5% for essentials ensures affordability of daily-use items like soap, detergents, basic healthcare products, and food items.
   • 18% for luxuries ensures higher taxation for goods and services consumed primarily by those with greater ability to pay, striking a balance between fairness and revenue needs.
3. Encouraging compliance through simplicity

Simplicity is not just about ease for consumers but also for producers, traders, and tax administrators. A two-rate GST will reduce litigation, classification disputes, and compliance costs. This aligns with NST’s emphasis on reducing friction in economic life.

Economic and Social Benefits of GST Reforms

1. Boosting GDP Growth

By reducing distortions and making essentials affordable, GST reforms will enhance consumption demand, particularly among the middle class. Increased consumption translates into higher production, investment, and employment, contributing directly to GDP growth.

2. Promoting Social Equity

A rationalized GST structure promotes fairness by ensuring that taxation falls more heavily on luxuries rather than essentials. This aligns with the NST mandate that taxation should support equity and inclusivity.

3. Strengthening the Middle Class

The middle class forms the backbone of India’s consumption-driven economy. Making their basket of consumption more affordable through lower GST on essentials will free up disposable income, creating a virtuous cycle of spending and growth.

4. Enhancing Trust in Governance

Frequent complaints about arbitrary GST rates have eroded trust. A transparent, simplified system will restore confidence among citizens, traders, and industries, reinforcing the spirit of cooperative federalism that underpins GST.

Needonomics and the Future of Taxation

The GST overhaul must be seen as more than a technical adjustment—it is an opportunity to realign taxation with the philosophy of Needonomics. Instead of chasing ever-higher revenues, taxation must aim to balance needs and resources, keeping the welfare of citizens at the core.

NST envisions a tax system that:

• Distinguishes essentials from luxuries on the basis of social and economic realities.
• Encourages responsible consumption (needo-consumption) rather than wasteful spending.
• Ensures affordability of essentials for every household, particularly the working class.
• Promotes economic happiness by reducing the daily burdens of ordinary citizens.

Conclusion

The GST reforms of 2025–26 are not merely a fiscal adjustment but a step toward fulfilling the mandate of Needonomics School of Thought. By scrapping the 12% and 28% slabs and consolidating most goods and services into 5% and 18%, the reforms will promote fairness, simplicity, and inclusivity. They will strengthen the middle class, enhance compliance, and contribute to GDP growth.

In the words of Needonomics, taxation is not just about revenue—it is about responsibility. A happy goose lays more golden eggs. To keep the Indian economy vibrant and humane, GST reforms must place needs above wants, fairness above arbitrariness, and welfare above mere revenue maximization. Only then can Bharat move decisively toward the vision of Viksit Bharat 2047, where economic growth is balanced with social justice and human dignity.